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United States Board of Tax Appeals
Submitted May 7, 1925. ; October 12, 1925, Decided
Docket No. 1473.
[*839] Before MARQUETTE, LANSDON, and GREEN.
This appeal is from the determination of a deficiency in income and profits taxes proposed to be assessed for the year 1919 in the amount of $2,372.94.
FINDINGS OF FACT.
The taxpayer is a corporation organized under the laws of Virginia on June 9, 1916. During the year 1916 the taxpayer acquired a tract of oil land in Carter County, Ky., consisting of 197 1/2 acres, which it subdivided into lots 20 feet by 40 feet each. The corporation proceeded to dispose of the lots through J. B. Stone, Inc., its sales agent, at $20 and $25 per lot, and one-half of the sale price was paid to the sales agent as commission. J. B. Stone was president [**2] of the taxpayer and of J. B. Stone, Inc., The taxpayer, through its agent, made representations to purchasers and prospective purchasers that the funds received through the sale of lots would be used in the drilling of wells. Approximately one-fourth of the lots were sold during 1919 and not more than one-half of the lots were ever sold. The conveyance to each purchaser contained, among others, the following covenant:
That the "Company" will drill four (4) wells for oil or gas on the subdivision, shown by said Plat, the location to be selected by some practical engineer chosen by the "Company"; that the first well will be commenced at such time as twenty-five per cent. of the lots in the said entire sub-division are sold and paid for; that a second well will be commenced when fifty per cent., and a third well when seventy-five per cent. of the lots are sold and paid for, and a fourth well when the balance of the lots in the entire sub-division are sold and paid for, all wells so commenced to be drilled to completion.
The "Company" covenants and agrees that the income derived by it from the sale of oil or gas, from any well so drilled by the "Company" on the subdivision, shall [**3] be used, first, for the drilling of additional wells, as the "Company" may deem best for the interest of the lot owners in said sub-division and the operation of all wells drilled; second, the residue shall be divided as follows: one-fourth shall be retained by the "Company", and the remaining three-fourths shall be deposited in the Seaboard National Bank, of Norfolk, Va. and the checks to be issued every three months to the lot owners for their proportionate part of the profits on all oil and gas taken from well sunk by said "Company", said lot owners to be recognized according to records of Company.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
2 B.T.A. 838 *; 1925 BTA LEXIS 2250 **
APPEAL OF KENTUCKY LAND, GAS & OIL CO.
drilling, taxpayer, oil, percent, purchasers, sale of a lot, covenants, lot owner, representations, subdivision, sales agent, sale price, reservation, one-fourth, one-half, dispose, profits, deed, feet